A 10% growth rate for a Stocks and Shares ISA could turn £20k into…
A Stocks and Shares ISA is an excellent way for many in the UK to invest in a tax-efficient manner. I don’t believe an ISA is the right tool for people who want to trade on a daily basis. But for those with a long-term viewpoint, the potential returns could help to turn a £20k initial amount into a much larger sum further down the line.
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Assessing potential returns
When trying to forecast the potential portfolio value in years to come, I have to pick a rate of return. For example, I could assume the same return as the FTSE 100, which is up 9.2% over the last year. Or I could use the average yield of a hand-picked group of dividend stocks, which could be in the 6%-8% range. I could even consider the recent annual returns of top growth stocks. Nvidia is up 39% in the past year, with Tesla up 48% and Microsoft up 23%.
Clearly, it’s not easy to pick a benchmark return. I’ve chosen to use 10% as I believe this is a fair estimate (but not a guaranteed return) for the long run. Importantly, this ISA strategy is built around the bulk of the holdings being growth stocks, with a small portion to dividend shares. With around a dozen top growth shares included, I think that it’s not unrealistic to target this sort of annual return.
If the initial £20k sum was put in an ISA, and the 10% rate of return was achieved, the portfolio could grow over time. Just after year 16, the pot could be worth a little over £100k, even without adding in another penny. If an investor added £250 a month, in addition to the initial £20k, they could pass the £100k mark during year 13.
Of course, there’s no guarantee this return will be achieved. All the growth stock picks could fail, potentially causing the ISA to be worth less over time instead of more.
One stock to consider
In terms of finding good growth shares for inclusion, I like Zoom Video Communications (NASDAQ:ZM). The US stock is up 22% over the past year.
Many will remember Zoom from the pandemic, but some might be curious as to why it’s a pick now. For a start, Zoom recently lifted its full-year 2026 revenue and earnings forecasts, driven by strong demand for AI-powered features like the AI Companion suite. The ramp-up in AI usage, which ranges from meeting summaries to video clip generation, has massive potential for the company.
It’s also focusing more on corporates to help reduce the reliance on private individuals. It continues to gain ground in enterprise segments, with a rising count of high-value customers and improved net dollar retention metrics. So when I look at the future, I don’t see a business that was just a pandemic boom-and-bust stock. Instead, Zoom is successfully transitioning to an AI-enabled enterprise communications platform, with expanding offerings and a stable customer base fuelling renewed growth.
Of course, there are risks. It faces fierce competition from large tech firms with similar platforms. For example, Microsoft and the Teams programme.
But even with this, I think investors can consider the stock as part of an ISA growth strategy.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Microsoft, Nvidia, Tesla, and Zoom Communications. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
